Outsourcing debate – A weekend roundup

This week The Acorn covered some key developments in the debate over outsourcing raging in the US and UK. This being an election year in the US populist myopia is only to be expected. However, many bloggers and opinion leaders are coming out in support of outsourcing with well reasoned arguments. Here’s a round up of a few of them.

Companies that used to bring Indians to America to do IT work have responded to stricter visa regimens by sending the work offshore instead. Good going, Congress! … NOT
This matches the experience of Hong Kong. Twenty years ago, as Hong Kong salaries increased, Hong Kong refused to allow factories to import Chinese workers from the mainland. So, instead, those factories moved to China. At first all the managers were Hong Kong people, but more and more of the supervisory and back office jobs are being localized. So, instead of just losing the factory worker jobs, Hong Kong is losing the management, pink collar, and IT jobs as well.

Ironically, much of the move toward offshoring is the result of ill-considered efforts to keep software jobs in the United States. Previously, companies had brought Indian programmers to this country to do their work under a program established in 1990. It provided these foreign workers with H-1B visas that allowed them to work here temporarily. But under pressure to save such jobs for the native-born, the number of visas allowed under this program was reduced from 195,000 to 65,000 in October.

So now, instead of having Indian workers come here, where they spent much of their earnings, companies are contracting with them to work in India, which is where they now spend their earnings. Rather than admit that they were wrong in the first place, the same people who demanded restrictions on foreign workers are trying to get new limits placed on outsourcing, as well. A new report from the National Foundation for American Policy (nfap.net) details this effort and the likely costs. These include higher taxes when laws are passed preventing state and local governments from utilizing cheaper foreign sources for information technology (IT) services.

Another thing that is forgotten in the whole outsourcing debate, as elsewhere: people generally have a myopic view of income. If my income, as shown on a W2, remains the same from one year to the next, but my purchasing power increases through lower prices then I have received an increase in economic income. It’s not as easy to grasp as a straightforward number on a tax document but it’s just as real.

Compared with the end of 1999, which was still a good time for programmers, December 2003 data show a 14 percent increase in business and financial occupations, a 6 percent increase in computer and mathematical jobs, and a 2 percent drop in architecture and engineering jobs. New programming jobs may be springing up in India, but they aren’t canceling out job growth in the United States.

To encourage companies to invest in such training, Dr. Mann argues for a “human capital investment tax credit,” similar to the credit for investing in physical equipment. She also believes that the federal aid given to displaced manufacturing workers should be extended to cover information industries. And she suggests that information technology itself may help with job searches, crossing the old boundaries of classified ads.

“There is no question that the downside anecdote – the well-trained person losing their job – is a story that people identify with,” Dr. Mann says. “They simply don’t identify with the story of the person who changed their job and does three times better.”

“Most of the stories are about downside loss, not about upside gain,” she adds, “and there is a lot of upside gain.”

Sure, outsourcing is a political issue. So was Japanese auto competition. So are steel imports. But the fact that unemployed workers are understandably upset doesn’t mean the policies they want–or the general anti-competitive attitudes they express–are in the public interest.

2 thoughts on “Outsourcing debate – A weekend roundup”

Thanks for the cite back to my blog – glad to know someone is apparently at least a little impressed by what I write.

I got my bit about “Companies that used to bring Indians to America to do IT work have responded to stricter visa regimens by sending the work offshore instead.” from the Bartlett article you quoted next. You seem to be calling him a protectionist… He isn’t. He supports offshoring.

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Thanks for the cite back to my blog – glad to know someone is apparently at least a little impressed by what I write.

I got my bit about “Companies that used to bring Indians to America to do IT work have responded to stricter visa regimens by sending the work offshore instead.” from the Bartlett article you quoted next. You seem to be calling him a protectionist… He isn’t. He supports offshoring.